046.

Province of Misamis v Cagayan Electric

The Province of Misamis Oriental, represented by its provincial treasurer v. Cagayan Electric Power and
Light Company, Inc.
Jan. 12, 1990
Grino-Aquino, J.
Recit-Ready Version:
CEPALCO was granted a franchise which imposed a 3% tax in lieu of all taxes and assessments. Later, the
province of Misamis Oriental tried to impose a local franchise tax through a later legislation. CEPALCO paid
under protest, but claimed an exemption. CFI ruled in CEPALCOs favour.
SC upheld, saying that a general statute cannot generally overcome a special one, and, more importantly, that
the in-lieu-of-all-taxes clause exempts the grantee of the franchise from paying any other taxes.
Facts:
Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a franchise to operate and
maintain an electric light, heat and power system in the City of Cagayan de Oro via RA 3247. Due to RA
6020, its field of operation was extended to the municipalities of Villanueva and Jasaan. Both these RAs
provide that:
In consideration of the franchise and rights hereby granted, the grantee shall pay a franchise tax equal to three
per centum of the gross earnings for the electric current sold under this franchiseProvided, that the franchise
taxshall be in lieu of all taxes and assessments of whatever authority upon privileges, earnings,
income, franchise, and poles, wires, transformers, and insulators of the grantee, and from which taxes
and assessments the grantee is hereby exempted.
Pursuant to the Local Tax Code (PD 231), which granted provinces the power to impose a tax on businesses
enjoying franchises, the Province of Misamis Oriental enacted Provincial Revenue Ordinance 19, which,
through Section 12 thereof, levied a provincial franchise tax on businesses enjoying franchises.
The provincial treasurer demanded the payment of that tax from CEPALCO, who refused, citing the
exemption granted them by RA 6020. However, in view of the opinion rendered by the provincial fiscal, it
paid the taxes under protest, then appealed to the Sec. of Justice. The latter reversed, ruling in favour of
CEPALCO.
The Sec. of Finance issued Local Tax Regulation 3-75, adopting the opinion of the Secretary of Justice.
This led to the province filing a complaint in the CFI of Misamis Oriental for declaratory relief, which was
dismissed. Hence this appeal.
Issues:
WON CEPALCO is exempt from paying a provincial franchise tax. (Yes)
Ratio:
There is no provision in PD 231 which expressly or impliedly amending Section 3 of RA 6020. A special and
local statute applicable to a particular case is not repealed by a later statute which is general in its terms,
provisions and application, even if the terms of the general act are broad enough to include the cases in the
special law unless there is manifest intent to repeal or alter the special law.
RA 6020 is a special law, while PD 231 is a general law. The presumption is that special laws are exceptions to
the general law because they pertain to a special charter granted to meet a particular set of conditions and
circumstances.
CEPALCOs franchise expressly exempts it from paying all taxes of whatever authority except the 3% tax
on its gross earnings. Previous similar clauses in other legislative franchises were also upheld as such. The
magic words are shall be in lieu of all taxes.
This is because the exemption is part of the inducement for the acceptance of the franchise and the rendition
of public service by the grantee. As a charter is in the nature of a private contract, the imposition of another
franchise tax on the corporation by the local authority would constitute an impairment of the contract
between the government and the corporation.
Other electric companies were subjected to franchise taxes because their franchises did not contain the in-
lieu-of-all-taxes clause. This is the point of Local Tax Regulation 3-75, which provides:
The franchise tax imposed under local tax ordinance pursuant to Sec. 9 of the Local Tax Code, as amended,
shall be collected form businesses holding a franchise but not from business establishments whose franchise contains
the in-lie-of-all-taxes-proviso.
Petition Denied. CFI decision affirmed.
Gabe.